Mismanagement of resources, disregard for financial planning and the adoption of uncalculated risks are among the main causes of corporate indebtedness. Business that are not prepared or well organized, often end up contracting debts, tarnishing their image in the market, and harming their own grow. However, in some cases, acquiring a debt is something that cannot be avoid or controlled. During moments of crisis, such as the one we live in now, where sudden changes have shaken the entire economy, staying compliant may be the biggest challenge for a business.
In both contexts, the practice of debts restructuring comes as a strong ally. Through it is possible to negotiate conditions that will allow the payment of creditors, granting the enterprise a chance to restore its reputation and its cash.
In Brazil, through the Law 11.101/2005, also known as the Recovery and Bankruptcy Law, two debts restructuring measures have been established: the extrajudicial recovery and the judicial recovery.
While the first is a simpler mechanism which allows the debts negotiation along the creditors without a formal process, the second is a complex legal instrument that links the overcoming of debts to the filing a lawsuit – it is even recommended in more serious cases of indebtedness, as its main objective is the maintenance of business functions and the prevention of bankruptcy.
And despite the differences they have in their applicability, both extrajudicial and judicial recovery have similar executions. Both, for example, usually develop in three general steps:
Diagnosis: examines the general financial situation of the company and the debt structures it has, verifying the debt profile of the business.
Recognition and registration: identifies which creditors the company owes, what are the amounts of each debt and also their respective interest and fees.
Action: defines the trading strategies that will be applied: which debts will be prioritized, what will be the forms of payment (installment, for example), the conditions and deadlines that will be requested from creditors, etc. In cases of judicial recovery, it is at this stage that the case is filed in the judiciary.
After these three moments, it is still common for the debt restructuring process to end with the development of a prevention plan for the company, in order to ensure that it will be prepared to deal with its finances without falling back into default.
Debt restructuring in times of crisis
Faced with the current pandemic of the new coronavirus, which impacted all global economies in some way, many companies suffered financial shocks and contracted worrying debts. For them, debt restructuring is highlighted, as it can be fundamental to their recovery.
And it is worth mentioning that, in moments like this, chances of getting great negotiations are usually higher, since creditors, who also have been shaken by the crisis, are more flexible to the proposals.
Investing in debt restructuring actions, therefore, is always interesting for companies: whether in troubled economic moments or not. But it is worth remembering that indebtedness, in situations of economic instability, is synonymous with greater vulnerability. Without debts, the company has greater financial control, greater credibility in the market and still has the tranquility of not being in the bankruptcy risk zone.
The Stürmer & Wulff
With regard to debt restructuring, the Stürmer & Wulff operates on several fronts, offering advisory and litigation assistance to both companies and investors. If we have aroused your interest in this practice and you want to know more how it can benefit your business in this period of crisis, do not hesitate to contact us. We put ourselves entirely at your disposal.